Oil Prices Tank; Go Below $60 A Barrel

AP Photo/Hasan Jamali
Oil prices slid below $60 a barrel Friday as investors braced for company earnings reports next week that will provide clues on the strength of crude demand.

While global appetite for crude over the next few months remains unclear, expectations are that it will increase by next year, with the International Energy agency predicting a 1.7 percent rebound in demand by next year.

Benchmark crude for August delivery was down 69 cents at $59.72 a barrel by midday European electronic trading on the New York Mercantile Exchange. On Thursday, the contract rose 27 cents to settle at $60.41.

Oil has bobbed near $60 a barrel the last two days after dropping from an eight-month intraday high of $73.38 on June 30 on investor concern that a rally since March wasn't justified by weak global crude demand.

"All the focus is on demand," said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore. "The second quarter earnings season is going to be very important for crude."

"If we see disappointments there, people will say we've gone too far, too fast."

The Paris-based IEA looked further ahead, predicting in its monthly survey that economic recovery in developing countries will help counter a two-year drop in oil usage sparked by the global recession.

It said global oil demand will increase by 1.4 million barrels a day in 2010 to 85.2 million barrels a day - a "strong rebound" that would be led by growth in developing countries.

The IEA left its forecast for 2009 oil demand unchanged, and still expects it to drop 2.9 percent.

Still the direction of the oil market remained unclear in the short run, with prices poised to rise substantially above - or fall precipitously below - the $60 mark.

"If the bulls are going to put up a defense, this is where it will occur," wrote trader and analyst Stephen Schork, in his Schork Report. "If they succeed, then this support will act as a springboard for a second run at $75. If they fail, the path towards a $40-handle will be wide open."

Prices were supported Thursday after Aluminum maker Alcoa Inc., the first Dow Jones industrial average component to release earnings, reported a narrower-than-expected loss.

Results over the next few weeks from multinational mass market retailers - such as Colgate Palmolive, PepsiCo, and Johnson & Johnson - will help investors better gauge the strength of the global economy.

"These companies have a good feel for how demand is around the world," Moltke-Leth said. "What they say is going to be important for the near-term outlook for oil."

In other Nymex trading, gasoline and heating oil for August delivery fell by more than a cent to $1.65 and $1.52 a gallon. Natural gas for August delivery was steady at $3.40 per 1,000 cubic feet.

In London, Brent prices fell 61 cents to $60.49 a barrel on the ICE Futures exchange.